23Feb

White Paper Series: DCMS announces online slots stake limits

23rd February 2024 Chris Biggs 203

The Department for Culture, Media and Sport (“DCMS”) has today announced that the government will introduce statutory maximum stake limits for online slots games later this year, as follows:

£5 maximum stake limit per spin for adults aged 25 and above; and

£2 maximum stake limit per spin for young adults aged 18 to 24.

In reaching this decision, DCMS states:

“We believe these limits will achieve the government’s stated objectives of reducing the risk of gambling-related harm, with a lower risk of unintended consequences and less disruption to the majority of gamblers who do not suffer harm.”

DCMS’ announcement is accompanied by the publication of its response (the “Consultation Response”) to its consultation A maximum stake limit for online slots games in Great Britain, which we have previously discussed.

Implementation

DCMS’ announcement sets out that the online stake limits will come into force in September this year, subject to the passing of secondary legislation through Parliament. It is of note, however, that there is no reference to an implementation date in the Consultation Response itself. If the stake limits are approved by Parliament, the secondary legislation will impose new licence conditions on remote gambling operators, which the Gambling Commission will be responsible for enforcing.

Notably, there will be a phased approach to the implementation of these new requirements:

DCMS expects there to be a minimum six-week transition period for Gambling Commission licensees to introduce the £5 stake limit for all customers.

Following this, the government will allow a further six weeks for licensees to develop any necessary technical solutions before it expects the lower £2 stake limit for young adults aged 18 to 24 to be in place.

The phased approach acknowledges that development of technical solutions by licensees may be required for age-based limits. However, following the transition period, if licensees are unable to develop solutions adequately to distinguish between customers who are 25 and over and those who are under 25, DCMS expects licensees will not be able to offer any customers online slots stakes exceeding £2 per spin. Licensees would therefore be wise to start taking steps now to develop the technical solutions required.

Key points of note in the Consultation Response

DCMS received and considered 98 stakeholder responses and identified the following clear themes from those responses:

Online slots are a high-risk gambling product and statutory stake limits are necessary to reduce the risk of gambling-related harm.
Many respondents indicated that online slots stake limits should align with stake limits on gaming machines in land-based operators.
It is important to retain consumer choice in light of the risk of consumers moving to the illegal online market if they are no longer able to stake at their preferred levels.

£5 stake limit

Notably, 44% of respondents indicated they were in favour of the lower £2 stake limit for all adults. DCMS explains that 26% of respondents (some of whom selected the £2 limit option) indicated in the free text box of the consultation question that the stake limit should be lower than £2. Many respondents in favour of these lower stake limits indicated that this option was “most likely to reduce average losses or help minimise the risk of runaway losses”, therefore significantly reducing gambling-related harm.

DCMS states around 20% of customers currently choose to stake over £5 per spin on online slots at least once a year and will therefore be impacted by the stake limit, however only 0.6% of all spins are over £5. DCMS believes that a £5 stake limit will: (a) achieve the government’s stated objectives in a proportionate way, with a lower risk of unintended consequences such as displacement to the illegal online market; (b) help to reduce harm because of the constraint on a player’s ability to place very large stakes quickly; and (c) align with the stake limit for category B1 machines in casinos.

£2 stake limit

DCMS states that the majority (60%) of respondents favoured a stake limit of £2 or under for young adults aged 18 to 24, many of whom cited evidence showing that young adults may be particularly vulnerable to gambling-related harm and “felt that this justified greater protections either in the form of a separate stake limit or otherwise.”

DCMS agrees that the evidence justifies increased protections for this cohort of consumer:

“Young adults have the highest average problem gambling score of any age group, generally lower disposable income, ongoing neurological development impacting risk perception, and common life stage factors like managing money for the first time or moving away from support networks.”

“A separate limit for young adults aligns with the wider government approach to gambling of targeted and evidence-based interventions for those at risk, while not unduly restricting others.”

Scope of limits

The government received general support for the descriptions of ‘online slots’, ‘maximum stake’ and ‘game cycle’ proposed in its consultation. The definition of online slots appears to have drawn the most scrutiny: 65% of respondents agreed with the government’s description and 22% did not agree, with some respondents considering the description to be too vague and therefore susceptible to loopholes. DCMS states that some respondents expressed concerns that gambling operators could be incentivised to develop products which are functionally similar to online slots, but might be argued to be technically exempt to circumvent stake limits.

DCMS confirms that the government does not intend to introduce a maximum stake limit for online games other than online slots. However, its intention is for boundary-pushing products (such as those which combine fundamentally slots-type gameplay elements with other games like bingo – for instance the popular ‘slingo’ game) to be captured under the definition of slots and subject to the stake limits.

Summary

Whilst not unexpected, the introduction of the stake limits at these levels is a significant shift in the UK’s remote gambling sector and one which will come at a cost to licensees. DCMS acknowledges the likely reduction in annual gross gambling yield across the industry, as well as the costs associated with implementing the stake limits. However, DCMS is clear on the government’s position: the £5 and £2 stake limits “will limit the potential for harmful losses from those gambling at elevated levels of risk or experiencing problem gambling compared to the status quo of theoretically unlimited stakes.”

Whilst it is unclear when the government will table its secondary legislation for Parliament to consider, we encourage licensees to begin considering how they will implement the stake limits well in advance of the September commencement date (whenever that may be).

Please get in touch with us if you have any questions about the stake limits or if you would like assistance with any compliance or enforcement matters.

16Feb

Andrew Rhodes’ speech at ICE 2024

16th February 2024 Jessica Wilson 179

On 6 February 2024, Andrew Rhodes, Chief Executive of the Gambling Commission delivered a speech at the Consumer Protection Zone at ICE 2024. In his speech, Rhodes revisited the progress made over the last 12 months, discussed the balancing act that we strive to achieve in the industry, and assured industry stakeholders that the Gambling Commission will be listening to all consultation responses.

Rhodes began by taking the time to acknowledge the significance of the past 12 months for the gambling industry, with publication of the White Paper being “a key moment”, and implementation of the Fourth National Lottery Licence, the first change of operator in the history of the National Lottery; a unique achievement.

The overarching theme of Rhodes’ speech was balance; the balance between consumer choice and operator innovation on the one hand, and ensuring gambling is safe, fair and crime free with the right level of consumer protection on the other.

“Perhaps the hardest task we have in front of us is about that balance. The balance between protecting those who need it and not interfering with those who do not”.

Rhodes took a pragmatic view by acknowledging that everyone has a different idea as to how to achieve such balance, particularly between different jurisdictions and markets, but that ultimately the vast majority in the industry want a version of the same thing. Perhaps as a nod to Brazil’s recently regulated market, Rhodes noted that “each jurisdiction is likely to be on a different journey and…if your market has only recently opened up…there may be some quite choppy waters ahead.”

Rhodes highlighted the importance of collaboration in the industry, both with other jurisdictions and with stakeholders here in Great Britain. He noted that Great Britain has a mature gambling market and that the Gambling Commission has continued to work with other international regulators, in both current and developing markets, in order to share insight and experience. This was a common theme across ICE 2024, with Tim Miller, Executive Director of the Gambling Commission, acknowledging the benefits of “international cooperation” and “knowledge sharing” of regulators at the World Regulatory Briefing on Monday 5 February 2024.

Closer to home, Rhodes encouraged stakeholder engagement with the Gambling Commission’s consultations. He was transparent in acknowledging there “can be a lot of cynicism around consultations” but reassured his audience that the Gambling Commission “welcome all views” and “consider all responses carefully”. Rhodes recognised the benefits of bringing different stakeholders together and how a difference of opinions can assist in finding solutions to knotty industry debates and issues.

“Consultation responses do make a difference and they do help us make sure regulation is as good as it can be.”

Rhodes reiterated that the Gambling Commission will be publishing its response to its Summer Consultation in the “coming weeks” along with its proposed phased approach for implementing the much-debated financial risk checks and the use of pilot schemes.

The final aspect of Rhodes’ speech was the importance of evidence and how “a key part of implementation is improving the evidence and data around gambling”. Rhodes raised the Gambling Survey of Great Britain, an independent review which is expected to be published later in February, and explained how the Gambling Commission is holding events to discuss its use of data and evidence, and how to improve data collection.

Rhodes concluded by stating that:

“Getting the balance right is important. And keeping that balance is a job that is never done”.

We welcome Rhodes’ pragmatic and reasonable approach in his speech and agree with the important themes he highlighted. We look forward to the Gambling Commission’s consultation responses.

If you would like to discuss Rhodes’ speech or any of the themes therein, please get in touch with your usual contact at Harris Hagan.

02Feb

International Association of Gaming Advisors and Gaming Regulators European Forum Workshop: Manipulation of sports contests

2nd February 2024 Harris Hagan 190

The International Association of Gaming Advisors (“IAGA”) and Gaming Regulators European Forum (“GREF”) are delighted to be host a workshop on critical issues surrounding the manipulation of sports competitions at the London Marriott Hotel Canary Wharf at 4pm on Monday 5 February 2024. The workshop will present a unique opportunity to hear from international experts on sports betting integrity and gambling regulation across two sessions and an interlude.

The workshop will consist of the following sessions:

16:00 – International Olympic Committee lecture: the Prevention of the Manipulation of Competitions

The lecture will include:

An introduction to the Olympic Movement Unit on the Prevention of the Manipulation of Competitions (“OM Unit PMC”) by Friedrich Martens (Head of the OM Unit PMC);
A review of the betting-related provisions in the Council of Europe Convention on the Manipulation of Sport Competitions (“Macolin Convention”) by Nicolas Saydé (Head of the Macolin Secretariat, Council of Europe Sport Division); and
A review of the Olympic Movement Rules related to betting and the OM Unit’s work with betting entities by Evangelos Alexandrakis and Aiden Young (OM Unit PMC).

16:45 – Joint comments from GREF and IAGA

Following the lecture, there will be a welcome to the workshop and introductory comments from:

GREF Chairperson Isabelle Falque-Pierrotin (the Autorité nationale des jeux, French regulator); and
IAGA former President and Trustee John Hagan (Managing Partner, Harris Hagan).

17:00 – Panel discussion: Working together to protect international sporting events and gambling integrity

With numerous major sporting events occurring in Europe in 2024, the roundtable will discuss a number of critical priorities for event organisers, including sports betting integrity, match-fixing, gambling advertising and sponsorship, ethics and regulatory compliance.

Moderated by John Hagan, the panel will comprise:

Dieter Braekeveld (Integrity in Sports Training Officer at INTERPOL);
Atle Hamar (Director General of the Norwegian Gambling and Foundation Authority);
Friedrich Martens (Head of OM Unit PMC);
Tim Miller (Executive Director of the British Gambling Commission); and
Nicolas Saydé (Head of the Macolin Secretariat, Council of Europe Sport Division).

Harris Hagan is proud to continue its long association with IAGA, which includes Julian Harris and John Hagan serving as President in 2013 and 2019/2020, respectively, and Bahar Alaeddini serving as General Counsel and member of the Programme Committee. We therefore strongly recommend this workshop to readers not least for the excellent quality of the content and networking opportunities with the high-calibre speakers and panellists.

Please contact us if you would like to know more about IAGA’s work, membership and/or the workshop. We very much hope that you can join us there!

02Feb

Gambling Commission source of funding guidance: Two steps forward and one step back?

2nd February 2024 Jessica Wilson 203

In July 2023, we discussed the trials and tribulations of source of funding disclosure and the lack of clarity provided by the Gambling Commission as to what is expected from applicants, licensees and their investors. At that time, our understanding was that the Gambling Commission would publish guidance on its website by the end of July 2023, although no guidance was published until the end of November 2023. Now that we have the Gambling Commission’s guidance, do we have a clearer understanding of what the Gambling Commission requires?

What we were expecting

By way of recap, source of funding involves establishing the legitimacy of the source of the capital and revenue finance used in the licensee’s operation. It is a complex area and the lack of formal or detailed guidance from the Gambling Commission has resulted in applicants and licensees playing a guessing game as to what they should be disclosing to the Gambling Commission and when. Over the years, the Gambling Commission’s expectations have grown to be burdensome and novel, following an unpublished approach.

We were hopeful that the Gambling Commission’s guidance, once published, would provide that much needed clarity for the industry, along with an explanation of the basis for the Gambling Commission’s requirements.

Our understanding was that the guidance would be non-exhaustive and include example source of funding scenarios. We also expected the guidance to explain how the Gambling Commission divides investors into two groups when determining its source of funding requirements – unregulated and regulated – and that set thresholds would be put in place to trigger source of funding requirements.

What we were given

The Gambling Commission’s source of funding guidance has been included as sections within its Change of corporate control web page and What you need to send us when you apply for an operating licence web page.

The guidance is defined as a “general overview of when and what source of funds evidence is required”, caveated with confirmation that the Gambling Commission will “assess each application on a case-by-case basis according to risk”. Whilst the guidance is clear on when source of funding evidence is required, there are still murky waters on what source of funding evidence is required.

The Gambling Commission has indeed divided investor types into buckets, but instead of two, there are three different buckets; (1) unregulated, (2) regulated banks or investment companies investing their own money, and (3) regulated banks or investment companies acting as intermediary for an investor or pool of investors i.e. investment funds / financial institutions.

Each bucket has multiple sub-categories, resulting in 12 different categories of investor.

Two steps forward and one step back

We are pleased the Gambling Commission has recognised (and listened!) that clarity was needed and decided to publish its source of funding guidance, giving the industry a basis for its source of funding requests. It is also positive that the Gambling Commission appears to be applying a risk-based approach as evidenced by the thresholds that trigger detailed source of funding requirements.

However, whilst helpful in some ways, the Gambling Commission’s source of funding guidance now raises new question marks:

We had hoped the guidance would be separate formal guidance specific to source of funding. However, the guidance is buried within the Gambling Commission’s existing web pages that relate to change of corporate control and operating licence applications. Does the guidance and its investor categories apply in other source of funding situations such as capital raises and share issues that do not trigger a change of corporate control? We would expect the Gambling Commission to follow the same approach, but the position is unclear.

We now have clarity on when the Gambling Commission expects detailed source of funding evidence, but what the Gambling Commission expects to be disclosed is still vague. For example, for unregulated entities the guidance states: “Typically for established entities the latest set of filed financial statements can be sufficient evidence…For recently established entities, evidence of how the entity has been funded is required”. In respect of unregulated individuals, the guidance states: “Evidence of the individual’s source of funds will depend on what the source of funds is but examples include bank statements, investment portfolio statements and P60s”. Importantly, the guidance lacks example source of funding scenarios, which we had expected. Unfortunately, the position of what must be disclosed is no clearer than it was before, and we can only rely upon our previous experience with the Gambling Commission.

The Gambling Commission has used a combination of fixed figure and percentage thresholds to trigger source of funding disclosure. We understand the Gambling Commission’s intention is to take a risk-based approach, but it is questionable how this can be achieved if fixed figure thresholds are used, as there is the possibility that it could capture all investors, or none. For example, if a licensee received a £40,000 investment from 25 investors, totalling £1m, those individuals would not trip the £50,000 threshold and no detailed source of funding information would need to be disclosed. Conversely, if a licensee received a £1m investment from 20 individuals amounting to £50,000 each, detailed source of funding evidence is required for 100% of the investment. Testing every £ would be a risk-free approach, and not a risk-based approach.

It is a step in the right direction that investment funds are considered by the Gambling Commission separately from other investors, with investment funds being placed in their own investor group. This is an acknowledgement from the Gambling Commission of the complexities of investments made through an intermediary. However, the Gambling Commission requires a “schedule of underlying investors” from the intermediaries but gives no detail as to what such schedule should include. In our view, it would be unnecessary to provide full details of underlying investors that do not meet the source of funding thresholds set out by the Gambling Commission, and that an anonymised schedule would be sufficient (and this has been sufficient in the past based on our experience). However, if the Gambling Commission does require personal details of all underlying investors, this will continue to be problematic for investment funds who often have complex confidentiality agreements in place with their underlying investors.

FCA regulated entities that are underlying investors behind an investment fund are not treated the same as regulated entities that have made a direct investment. FCA regulated entities that have made a direct investment only need to disclose source of funding evidence if their investment is 10% or more of the total investment amount. However, if the FCA regulated entity is investing through an investment fund, that threshold percentage is reduced to 5%. It is not clear to us why there is a difference, particularly as FCA regulated entities should carry a lower risk, and our view is that there should be consistency.

On 15 December 2023 the Commission launched a consultation in respect of proposed changes related to financial penalties and financial key event reporting. One of the proposals is to introduce a new requirement for gambling licensees to submit a key event to report details of (a) individuals who acquire the equivalent of £50,000 or more worth of new shares in a rolling 12-month period, or (b) entities that acquire the equivalent of £1m or more worth of new shares in a rolling 12-month period. This proposal intersects with the source of funding guidance as it follows the thresholds for unregulated individuals and entities. The consultation states that if the financial key event creates a new controller, no key event notification is required as long as all of the information that would be included in the key event is included in the CoCC application. However, should a CoCC take place whereby the licensee issued £11m of new shares, with £1m of which being acquired by an FCA-regulated entity (equating to 9% of the investment, so they are not a controller), that entity would not be required to disclose its funds under the guidance (as it is less than 10% of the investment), but would be required to disclose under the proposed key event, as it is £1m or more. The proposal is subject to consultation, but we believe it is important that the Commission takes a consistent approach to the thresholds at which source of funding evidence must be disclosed.

We are pleased that the Gambling Commission has finally published some source of funding guidance and it is certainly a step in the right direction. However, there are still areas of uncertainty and new questions that have been raised. We wait to see how the Gambling Commission puts the guidance into practice.

How we can help

Harris Hagan can navigate you through your engagement with the Gambling Commission on source of funding, minimising disclosure for you and your investors wherever possible, as well as offer source of funding training, tailored to the specific needs of your business. If you would like to discuss further, please do get in touch.

02Feb

White Paper Series: Gambling Commission consults on timing of regulatory returns

2nd February 2024 Chris Biggs 183

On 30 November 2023, the Gambling Commission released its Autumn 2023 consultation on proposed changes to Licence Conditions and Codes of Practice (LCCP) and Remote Gambling and Software Technical Standards (RTS) (the “Autumn Consultation”). In this blog, we focus on the proposed changes to the Gambling Commission’s regulatory returns requirements, which for our regular readers, will not have come as a surprise.

Background

As we have previously reported, regulatory returns have been under the Gambling Commission’s microscope in recent months:

First, in an E-Bulletin on 29 August 2023, the Gambling Commission reminded licensees to submit regulatory returns on time in accordance with licence condition 15.3.1 of the Licence Conditions and Codes of Practice (“LCCP”). We discussed this reminder in our previous blog: Gambling Commission sets its sights on late regulatory returns and incorrect fee categories.

Subsequently (and as highlighted in our article: Regulatory returns are under the microscope – but will the key issue be missed?), the Gambling Commission’s Director of Research and Statistics, Ben Haden, posted a blog on 6 October 2023, entitled Making better use of operator data, confirming the regulator’s intention to make changes to its regulatory returns, including to “sharpen” the dataset currently received from licensees. Haden also indicated that there would be a consultation on the frequency of regulatory returns in November 2023.

It therefore comes as no surprise that the Autumn Consultation includes proposals to amend the frequency of submission of regulatory returns. In addition, the Gambling Commission indicates in the Autumn Consultation that it intends to make other changes outside of the consultation process. For example, by removing data fields from regulatory returns which are:

“both burdensome for gambling licensees and data quality issues for ”.

In this blog, we outline the Gambling Commission’s proposals in relation to regulatory returns and reflect on the likely impact of these changes.

Proposed changes to frequency – subject to consultation

Currently, the frequency of a licensee’s regulatory return submissions depends on the type of operating licence it holds. The Gambling Commission is consulting on requiring regulatory returns quarterly from all licensees, irrespective of gambling licence type.

It is expected that this proposal will affect the following categories / number of licensees:

Licence/Return	No. of licensees submitting annual regulatory returns
Adult gaming centre	400
Betting	549
Bingo	157
Casino (1968)	0
Casino (2005)	0
External lottery manager	28
Family entertainment centre	112
Gaming machine technical	402
Lottery	484
Remote casino, betting and bingo	10
Software	291

The Gambling Commission proposes to introduce this change by amending licence condition 15.3.1 as follows:

15.3.1 – General and regulatory returns

Applies to: All operating licences

On request, licensees must provide the Commission with such information as the Commission may require, in such a form or manner as the Commission may from time-to-time specify, about the use made of facilities provided in accordance with this licence and the manner in which gambling authorised by this licence and the licensee’s business in relation to that gambling are carried on.
In particular within 28 days of the end of each quarterly period ~~or, for those only submitting annual returns, within 42 days of the end of each annual period,~~ licensees must submit an accurate Regulatory Return to the Commission containing such information as the Commission may from time to time specify.

Further changes – not subject to consultation

The Gambling Commission also confirms in the Autumn Consultation that it plans to implement changes in relation to:

“the range of data required, the harmonisation of reporting periods across the industry, and improving the functionality for submitting and quality assuring the data.”

This is not the first time these changes have been mentioned. They actually flow from the Gambling Commission’s Changes to information requirements in the LCCP, regulatory returns, official statistics, and related matters consultation response, published in July 2020 (the “2020 Consultation Response”). According to the Autumn Consultation, the changes proposed in the 2020 Consultation Response were not implemented at the time due to the “reprioritisation” of the Gambling Commission’s work and the COVID-19 pandemic.

Changes to harmonise reporting dates

The first change that the Gambling Commission proposes to make is in terms of the “harmonisation” of regulatory return reporting dates. According to the Autumn Consultation, this change will take effect at the same time as its proposal to move to quarterly submissions – and means that the return due dates for all licensees will become:

Return	Reporting period	Return due date
Q2 return	1 April to 30 June	28 July
Q3 return	1 July to 30 September	28 October
Q4 return	1 October to 31 December	28 January
Q1 return	1 January to 31 March	28 April

Changes to data fields

In addition, the Autumn Consultation confirms that the Gambling Commission intends to remove a significant number of data fields from the current regulatory returns process, which it states will ensure:

data completion is less time-consuming for gambling licensees;
an opportunity to clarify questions and improve data quality;
obsolete and non-business critical fields/ questions are removed; and
improved understanding of current and emerging issues.

It is currently unclear which fields will be removed. Again, the Gambling Commission has chosen not to formally consult with the industry in respect of the removal of these data fields. However, it has confirmed that it will engage – outside of the consultation process – with the industry on the final reporting fields, with the intention to reduce the current number.

In line with Proposal 1 (of Part 2) of the 2020 Consultation Response, we expect the following data fields to be impacted as part of this process:

Non-GB data

The Gambling Commission will only ask for non-GB data at an aggregated activity level, as opposed to requiring data for each sport and game category level. (It is important to note here that the Gambling Commission is concerned with non-GB revenues received in reliance on the GB licence, rather than all non-GB revenues – as this is often misunderstood by licensees.)

B2C revenue share

Reporting of revenue share Gross Gambling Yield (“GGY”) for B2C licensees will be combined with proprietary GGY across remote casino, betting and bingo sport and game categories. The Gambling Commission stated that this would not affect licensees’ fee categorisation.

Gaming Machine Technical

The Gambling Commission will no longer ask for the number of units sold, software sales or gross value of software sales and instead simply require the total value of sales. It will also remove a number of questions relating to the purchase, lease or sale of machines, profit shares and reporting of data by venue type.

Bingo (non-remote)

Turnover reporting will no longer need to be split between participation fees and sales.

Workforce

The Gambling Commission will no longer ask licensees for their workforce numbers.

For operators interested in participating in the Gambling Commission’s pilot program (or providing feedback), queries can be directed to [email protected].

The elephants in the room

It is undeniable that aligning reporting dates for licensees will bring a degree of harmony to the regulatory returns process. However, neither the proposals in the Autumn Consultation nor the Gambling Commission’s intended changes to reporting dates / data fields address one of the main issues with regulatory returns, i.e. that fee categories are calculated by reference to a licensee’s licence year, not their financial or calendar year.

Currently, the Gambling Commission is generally amenable to amending a licensee’s reporting dates if requested by a licensee – giving licensees the flexibility to align their regulatory returns reporting dates with other internal financial reporting dates, which typically increases their ability to spot when they are about to exceed a fee category. However, once the new reporting periods are introduced, it seems that licensees will be unable to harmonise Gambling Commission reporting requirements with internal deadlines. The Gambling Commission appears to have paid little heed to this – despite some respondents to the 2020 Consultation highlighting that having the flexibility to determine their own reporting periods better enabled them to manage their resources to comply with their various other financial, regulatory and business reporting obligations.

Instead, it appears that the decision to align reporting dates has been made because it will be beneficial for the Gambling Commission, leading to:

an improved ability for the Gambling Commission to budget based on more timely reporting of financial information, which will assist forecasting and ensure licensees are in the correct fee category;
a more timely and accurate picture of the gambling sector, as the Gambling Commission will not need to estimate quarterly comparisons based on annual returns; and
improved data quality for the Gambling Commission’s official statistics.

As we have indicated in our previous blog, we are certainly hopeful that the Gambling Commission’s collection of ‘better’ evidence will lead to its better regulation. However, it is also critical that these changes do not create a significant additional regulatory burden on licensees.

Finally, we also hope that the Gambling Commission will, as part of its review of the regulatory returns data fields, review and update its regulatory returns guidance. As we have previously highlighted, the Gambling Commission’s guidance on regulatory returns is in many places, unclear and lacking in detail – an issue which continues to lead to confusion for licensees and, in turn, the inadvertent submission of inaccurate information. For now, it is unclear whether the Gambling Commission will update its guidance following the Autumn Consultation; and we strongly encourage licensees and other industry stakeholders to raise this with the Gambling Commission when they respond to the Autumn Consultation.

Next steps

The Autumn Consultation will close on 21 February 2024. Responses can be submitted through the Gambling Commission’s online survey or sent by post to the Policy Team at the following address: Gambling Commission, 4th Floor, Victoria Square House, Birmingham, B2 4BP.

In the short time before the Autumn Consultation closes, we strongly encourage licensees to consider how the proposals will impact their businesses and if they wish to influence change, respond to the Autumn Consultation and/or apply to be part of the Gambling Commission’s pilot data programme.

Please get in touch with us if you have any questions about your regulatory returns or if you would like assistance with preparing a response to the Autumn Consultation.

With thanks to G emma Boore and Jessica Wilson for their invaluable co-authorship.

31Jan

White Paper Series: What’s next?

31st January 2024 Harris Hagan 199

In our last blog, we looked back at the last nine months. In this blog, we look forward at what lies ahead in 2024.

Open consultations

In the words of the previous Gambling Minister, Paul Scully MP, and as previously blogged by us, “ the industry to stay engaged as policies are refined, finalised, and implemented.” We continue to urge the industry to heed that imperative during 2024 and beyond, including on the following forthcoming deadlines:

21 February 2024 – GC Autumn Consultation (on proposed changes to the LCCP and RTS) closes.
15 March 2024 – GC December Consultation (on proposed changes related to financial penalties and financial key event reporting) closes.

The consultation phase is critical, with both Government and the Gambling Commission remaining under immense pressure to listen. We remain happy to assist clients with their responses where that would be helpful, as we did in the last once in a generation opportunity in 2005!

Closed consultations and forthcoming responses

We await responses (including implementation timeframes) on the following consultations:

DCMS Land-Based Consultation (closed on 4 October 2023)
DCMS Stake Consultation (closed on 4 October 2023)
GC Summer Consultation (closed on 18 October 2023)
DCMS Levy Consultation (closed on 14 December 2023)

What else is on the horizon?

February to March 2024 – Likely publication of Gambling Commission’s new three-year corporate strategy

March 2024 – Gambling Commission conference on illegal gambling

1 April 2024 – LCCP GAMSTOP and suicide reporting requirements come into force

TBC: Although the following items are expected, the timing is currently unknown:

DCMS consultation on Gambling Commission fees
Expected introduction of the statutory gambling levy
Establishment of a gambling ombudsman
Official launch of the Gambling Commission’s Gambling Survey of Great Britain
Extension of Gambling Commission powers to tackle illegal gambling (“when Parliamentary time allows”) Government review of the horserace betting levy
Government consultation on bringing remote gambling into a single tax structure

Want to hear more?

Please sign up to our blog to receive insight and commentary on the implementation of the White Paper during 2024, as well as other relevant industry news.

21Dec

Treatment of Domestic Politically Exposed Persons under the Money Laundering Regulations

21st December 2023 Chris Biggs 208

On 14 December 2023, the UK Government laid The Money Laundering and Terrorist Financing (Amendment) Regulations 2023 (SI 2023/1371) (“Amendment Regulations”) before Parliament. The Amendment Regulations will amend The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (“MLRs”), to address the treatment of Politically Exposed Persons (“PEPs”) who are entrusted with prominent public functions by the UK (“Domestic PEPs”).

Amendments to the MLRs

The Amendment Regulations will introduce a requirement in the new paragraph 3A of Regulation 35 of the MLRs, stating:

“For the purpose of the relevant person’s assessment under paragraph (3), where a customer or potential customer is a domestic PEP, or a family member or a known close associate of a domestic PEP—

a) the starting point for the assessment is that the customer or potential customer presents a lower level of risk than a non-domestic PEP, and

b) if no enhanced risk factors are present, the extent of enhanced customer due diligence measures to be applied in relation to that customer or potential customer is less than the extent to be applied in the case of a non-domestic PEP.”

Regulation 35 will also be amended to include definitions for ‘domestic PEP’, ‘non-domestic PEP’ and ‘enhanced risk factors’, the latter of which means “risk factors other than the customer’s or potential customer’s position as a domestic PEP or as a family member or a known close associate of that domestic PEP.”

In a statement to the House of Lords, Baroness Vere of Norbiton, the Treasury Lords Minister, reiterated that domestic PEPs, or a family member or known close associate of a domestic PEP, must be treated as “inherently lower risk” than non-domestic PEPs by banks and other regulated firms. Baroness Vere further specified that the Government is making this change “to ensure that banks and other regulated firms take a proportionate and risk-based approach to the treatment of domestic PEPs”, which aligns with the Government’s approach to combating money laundering (“ML”) and terrorist financing (“TF”).

The Amendment Regulations will come into force on 10 January 2024.

Takeaway points for Casino Licensees

As a class of ‘relevant person’ listed under the MLRs, holders of a casino operating licence issued by the Gambling Commission (“Casino Licensees”) must comply with the MLRs.

Casino Licensees must therefore review and update their policies, procedures and ML/TF risk assessments to ensure they take into account the Amendment Regulations.

Please get in contact with us if you require assistance with reviewing your ML/TF risk assessment and/or your AML policies, procedures and controls.

21Dec

DCMS Committee on gambling regulation publishes its report

21st December 2023 Francesca Burnett-Hall 198

The Department for Culture, Media and Sport (“DCMS”) Committee on gambling regulation, appointed by the House of Commons, has today published its report with its conclusions and recommendations to Government.

The inquiry launched in December 2022, at a time when there was considerable uncertainty about the status of the Gambling White Paper. The original terms of reference were as follows:

What is the scale of gambling-related harm in the UK?
What should the key priorities be in the gambling White Paper?
How broadly should the term ‘gambling’ be drawn?
Is it possible for a regulator to stay abreast of innovation in the online sphere?
What additional problems arise when online gambling companies are based outside UK jurisdiction?

After the publication of the White Paper, on 27 April 2023, the terms of reference were broadened to include:

What are the most welcome proposals in the Gambling White Paper?
Are there any significant gaps in the Government’s reforms?
What are the potential barriers to the Government and Gambling Commission delivering the White Paper’s main measure by summer 2024, the Government’s stated aim?

Culture Media and Sport, Chair, Dame Caroline Dinenage MP, said:

“While gambling regulation should not overly impinge on the freedom to enjoy what is a problem-free pastime for the majority, more should be done to shield both children and people who have experienced problem gambling from what often seems like a bombardment of advertising branding at football and other sporting events. The Government needs to go further than the proposals in the White Paper and work with sports governing bodies on cutting the sheer volume of betting adverts people are being exposed to.”

The Committee received more than 160 submissions and held four oral evidence sessions.

Main conclusions and recommendations:

Implementation of the Gambling White Paper

The Government must set out a detailed timetable for the delivery of the White Paper’s proposals, with the Committee concerned that there was no mention of gambling legislation in the King’s Speech.
The Government and Gambling Commission should set out how they will address the growing trend of unlicensed gambling sites targeting the self-excluded. The Gambling Commission must also continue to work to improve its knowledge of the black market and its ability to monitor the number of British consumers gambling with illegal operators.

Online gambling protections

The Committee supports the principle of financial risk checks, but they must be minimally intrusive with customers’ financial data properly protected. There should be a pilot of the new system before the checks are fully implemented.
Stake limits for online slots should match those for electronic gaming machines in land-based venues and not exceed £5. Online deposit limits should be set by default and require customers to opt out rather than opt in.

Children and young adults

The Government should review the case for banning children’s access to social casino games, which are often playable on smartphones and simulate gambling activities and products.
The Committee supports the proposed enhanced online gambling protections for young adults aged 18-24, namely triggering a financial risk check at a lower monetary loss threshold and limiting the stake for online slots to £2. The Government, Gambling Commission, and gambling operators must ensure these measures do not unintentionally lead to more adults in this age group giving a higher age at account-creation.

Gambling advertising

There is an urgent need to better understand the effects of gambling advertising on the risk of harm. The evidence for a link between advertising and gambling harm currently appears much stronger than evidence indicating there is a risk of displacement to the black market if gambling advertising were restricted. The Government must commission research on the link between gambling advertising and the risk of gambling harm, including specifically for women and children.
The Government should have taken a more precautionary approach to gambling advertising in general – particularly to minimise children’s exposure. While a complete ban on gambling advertising would not be appropriate, there is still scope for further regulation beyond that proposed by the Government.
The Government should work with the Premier League and the governing bodies of other sports to ensure that the gambling sponsorship code of conduct contains provision to reduce the volume of gambling adverts in stadia. A higher proportion of gambling advertising in stadia should be dedicated to safer gambling messaging. The Government must require sports governing bodies to publish the code without further undue delay.

Land-based gambling

Customers who prefer to pay on electronic gaming machines using cash should continue to be able to do so on all machines following any introduction of cashless payments.
The Government must ensure that the new settlement arising from the review of the Horserace Betting Levy mitigates the impact of the White Paper’s reforms on the racing industry and ensuring British racing’s future.

Gambling research, prevention and treatment

The Committee supports the proposed structure and governance of the new statutory levy to be imposed on operators in the industry to fund gambling research, prevention and treatment. The Government must ensure that service providers currently operating via the voluntary funding system are adequately supported in the transition to a statutory levy. There should be a new national strategy for reducing gambling harms.

A Gambling Ombudsman

The scope of the new gambling ombudsman should include all disputes between gambling operators and their customers, not only those relating to social responsibility failings.

Government has two months to respond.

Please get in touch if you would like discuss any of the proposals in the White Paper or would like any assistance preparing a response to the Gambling Commission’s current open consultations: the Autumn consultation, which includes proposals relating to incentives, customer-led tools, customer funds protection and regulatory returns reporting (closing 21 February 2024) and the December consultation on proposals relating to financial penalties and financial key event reporting (currently closing 15 March 2024).

20Dec

DCMS publishes Gambling Commission Framework Document

20th December 2023 Ting Fung 188

Further to its consideration of the Gambling Commission’s powers and resources in the White Paper, the Department for Culture, Media & Sport (“DCMS”) published the Gambling Commission Framework Document (the “Policy Paper”) on 11 December 2023.

The Policy Paper, which has been agreed between DCMS and the Gambling Commission and approved by HM Treasury, sets out the broad governance framework within which DCMS will work with the Gambling Commission to provide:

“an effective environment for the Commission to achieve its statutory objectives through the promotion of partnership and trust.”

The Policy Paper updates the previous version of the corporate governance framework, which was published on 29 October 2021.

What are the Gambling Commission’s statutory objectives?

As a reminder, the Gambling Commission’s key statutory duty, as set out in the Gambling Act 2005, is to permit gambling insofar as it thinks is reasonably consistent with the licensing objectives of:

a) preventing gambling from being a source of crime or disorder, being associated with crime or disorder or being used to support crime;

b) ensuring that gambling is conducted in a fair and open way; and

c) protecting children and other vulnerable people from being harmed or exploited by gambling.

In addition, the Gambling Commission is responsible for regulating the National Lottery by virtue of the National Lottery etc Act 1993. In this regard, the Gambling Commission’s objectives are to manage the National Lottery in a manner most likely to secure:

a) that the interests of all participants are protected;

b) that the Lottery is run with all due propriety; and

c) that, subject to the objectives above, returns to good causes are maximised.

What does the Policy Paper do?

The Policy Paper sets out the manner in which DCMS and the Gambling Commission will work together to provide an effective environment for the Gambling Commission to achieve its statutory objectives.

The Policy Paper “does not convey any legal powers or responsibilities”. Instead, it provides a framework of good corporate governance practice and applicable regulatory requirements and expectations that accords with principles set out in the Treasury’s handbook, Managing Public Money (“MPM”), and within which both parties have agreed to operate.

Broadly, this means that the Policy Paper sets out the Gambling Commission’s core responsibilities, describes the governance and accountability framework that applies between the roles of DCMS and the Gambling Commission, and sets out how the day-to-day relationship works in practice, including in relation to governance and financial matters.

What does the Policy Paper say?

Some of the more notable aspects of the Policy Paper include:

In accordance with MPM Annex 3.1 a requirement for the Gambling Commission to provide “an account of corporate governance in its annual governance statement” including an assessment of its compliance with the Corporate Governance in Central Government Departments Code of Good Practice, with explanations of any material departures.
A requirement for Gambling Commission officials to liaise regularly with officials in DCMS’ Gambling Commission sponsorship team, DCMS’ primary contact with the Gambling Commission, to review performance against plans, achievement against targets and expenditure. This relationship, in turn, is overseen by the Deputy Director for Gambling and Lotteries.
Annual submission by the Gambling Commission of a draft corporate plan considering the following key matters in the year ahead:
- key objectives and associated key performance targets for the forward years, and the strategy for achieving those objectives;
- key non-financial performance targets;
- a review of performance in the preceding financial year, together with comparable outturns for the previous 2-5 years, and an estimate of performance in the current year;
- alternative scenarios and an assessment of the risk factors that may significantly affect the execution of the plan but that cannot be accurately forecast; and
- other matters as agreed between the department and the Gambling Commission.
The first year of the corporate plan will form the basis of the Gambling Commission’s business plan, which shall then be updated annually regarding key targets and milestones for the year immediately ahead. DCMS will also use the draft corporate plan to allocate the Gambling Commission’s annual budget and send this to the Gambling Commission by May/June each year.
A requirement for the Gambling Commission to publish an annual report of its activities, with the draft submitted to DCMS at least two weeks before the proposed publication date. The annual report must:
- cover any corporate, subsidiary or joint ventures under the Gambling Commission’s control;
- comply with the Treasury’s Financial Reporting Manual; and
- outline the Gambling Commission’s main activities and performance during the previous financial year and summary form forward plans.
In addition, the annual report must include the Gambling Commission’s finalised (audited) accounts. However, these will need to be provided to DCMS by May/early June each year so that they may be consolidated within DCMS, laid in Parliament and made available on the Gambling Commission’s website.
Formal performance review by DCMS four times a year.
Annual meeting between the Responsible Gambling Minister and Gambling Commission Chair as well as annual review of the Chair’s performance by DCMS.
Annual meeting between the Principal Accounting Officer (the Permanent Secretary of the department) and Gambling Commission Chief Executive (who is also the Accounting Officer responsible for safeguarding public funds and ensuring that the Gambling Commission is being run according to the MPM standards regarding governance, decision making and financial management).
A requirement for the Gambling Commission to provide information to DCMS monthly (at a minimum) to enable DCMS to satisfactorily monitor the Gambling Commission, including but not limited to its cash management.
Internal audits to be conducted (according to the Public Sector Internal Audit Standards, as adopted by HM Treasury) and reviewed by DCMS’ sponsorship department.

In addition, the Gambling Commission’s agrees to comply with the guidance set out at Annex A of the Policy Paper in areas of corporate governance, financial management and reporting, management of risk, commercial management, public appointments, staff and remuneration, and other general guidance.

Gambling Commission Fees

Notably, in relation to Gambling Commission fees (a topic upon which DCMS is expected to consult next year), the Policy Paper confirms that review of Gambling Commission fees remains at the discretion of the Secretary of State, to be exercised in accordance with MPM principles. Nevertheless, the Policy Paper confirms that the:

“Gambling Commission and DCMS will carry out an annual health check to determine whether fee levels remain appropriate or whether a further comprehensive review is required”.

The annual health check will consider:

any significant changes to legislation or the number/complexity of regulated operators;
levels of inflation;
efficiency savings made by the Gambling Commission; and
whether changes to industry structures or patterns of risk have significantly altered the focus of the Gambling Commission’s regulatory effort.

DCMS can bring the annual health check forward or initiate a comprehensive review of fees if it is clear this is required. Otherwise, the outcome of the annual health check will be recorded and signed off by the Director of Finance or the Head of Gambling and Lotteries in DCMS and by the Chief Executive or Chief Operating Officer of the Gambling Commission.

Next steps

The Policy Paper confirms that it should be reviewed and updated at least triennially unless there are exceptional reasons. However it goes on to state that the latest date for the next review and update is 1 September 2025, just under two years from now.

Given the amount of work on both DCMS and the Gambling Commission’s respective “plates” at the moment – with many of the reforms in the White Paper yet to be implemented – DCMS and the Gambling Commission will likely be pleased that the Policy Paper has now been agreed and that they can both take positive steps to progress other matters.

Please let us know if you have any questions or wish to discuss.

For further details on the Policy Paper, see the DCMS’ website.

18Dec

“Naughty or Nice?” – the Gambling Commission publishes its latest consultation on financial penalties and financial key event reporting

18th December 2023 Ting Fung 187

Between August 2021 and July 2023, Gambling Commission licensees paid around £38 million in financial penalties to HM Treasury’s consolidated fund and £44 million in lieu of a financial penalty via the regulatory settlement process.

After continued calls for clarification on the calculation of and challenges to its financial penalties, the Gambling Commission published its 2023 Consultation on proposed changes related to financial penalties and financial key event reporting (the “Consultation”) on 15 December 2023. The Consultation also addresses updates to the licence conditions and codes of practice (“LCCP”) in relation to financial key event reporting.

We set out below a summary of the key changes proposed in the Consultation.

Enforcement – financial penalties quantum

Aim?

The Gambling Commission’s intention is to:

“ensure a consistent process for the determination and imposition of financial penalties… provide greater transparency and clarity over how financial penalties are calculated … allow a sufficient scope to exercise necessary judgment in the determination of the quantum based on individual case characteristics, and to mitigate the risk of legal challenges on our approach.”

The Gambling Commission hopes that greater transparency and clarity for licensees will streamline its enforcement process by reducing protracted correspondence between licensees and the Gambling Commission, which will also help take the pressure off the two-year limit it has for imposing a financial penalty.

How will penalties be calculated?

The Gambling Commission proposes to update its Statement of Principles for Determining Financial Penalties to introduce a more clearly defined six-step process (new wording in bold and italics):

Calculate the disgorgement element of the penalty (if appropriate) ~~to reflect any financial detriment suffered by consumers and/or remove the financial gain to the Licensee, if possible~~.
~~Consider the seriousness of the breach to determine the appropriate~~ Determine the starting point for the penal element of the fine, in most cases by reference to seriousness and a percentage of GGY for the relevant breach period.
Consider aggravating and mitigating factors which may increase or decrease the penal element.
Consider the need for a deterrence uplift to the penal element~~, having regard to the principle that non-compliance should be more costly than compliance and that enforcement should deliver strong deterrence against future non-compliance~~.
Consider a any discount ~~to the penal element where early resolution has been reached~~ for early resolution.
Consider ~~whether an~~ any adjustment ~~should be made to ensure the sum of the figures at steps 1 (if calculated) and step 5 are reasonable and proportionate in respect of~~ for affordability and proportionality.

Financial penalties calculations will primarily be based on a proportion of the licensee’s GGY and will be based on the “level of seriousness” of the breach, with an escalating five-level scale starting at 0% to 0.99% for a level 1 breach (for example, one-off breaches) up to 10-15% of GGY for a level 5 breach, representing “a very serious threat to the licensing objectives”. Higher penalties may be imposed in “exceptional circumstances”, including using a non-GGY approach where more appropriate.

In line with the proposed updated six-step process, these baseline calculations would be subject to the adjustments set out at 3-6 above.

Financial key event reporting – scrutiny of investor source of funds

Aim?

The proposed changes to the LCCP are designed:

“to take account of the increase in complexity of mergers and acquisitions, and the increased globalisation of gambling.”

Key updates?

The current reporting threshold under licence condition 15.2.1(2) of the LCCP (reporting key events) regarding investors will be raised from 3% to 5% to align with requirements in other global jurisdictions.

The Gambling Commission is also proposing to expand reporting requirements regarding ‘relevant persons’ “significantly, but proportionately” to include “partnerships, trusts, charities and investment funds” which have “both direct and indirect interests in the gambling licensee of 5% or more”.

A new requirement will also necessitate disclosure of:

individuals who acquire the equivalent of £50,000 or more worth of new shares in a rolling twelve-month period; and
entities that acquire the equivalent of £1 million of new shares in a rolling 12-month period.

The Gambling Commission has indicated in the Consultation that:

“Given that this proposed new key event is focused on the raising of investment by the gambling licensee by issuing new shares, our expectation is that the source of funds evidence is gathered upfront as part of the share issuing process and should be reportable in the normal key event reporting timeframe.”

As such, this disclosure will include not only the identity of the investor and the value of the acquisition, it will also require the provision of evidence of the source of funds for the investment.

What’s next?

The Consultation is expected to close on 15 March 2024.

Subject to the actual changes to be made by the Gambling Commission, which it will outline when it publishes its response to the Consultation in due course, licensees can expect one or more versions of the following documents to be published in the next year:

We will be providing further insight on the proposals in the Consultation in upcoming blogs. In the meantime, please see David Whyte’s previous pre-emptive article, White Paper Series: The Gambling Commission’s powers – more to come?

We thoroughly encourage all licensees to respond to the Consultation.

Please get in touch if you have any questions or would like any assistance drafting your response.

Gambling Regulation